Tax Pros Recount Funny Taxpayer Foibles

LOS ANGELES – Did you hear the one about the IRS auditing the Rabbi's synagogue? How about the one about paying with four toilet seats? Or "take my child, please?"

Google returns 5,490,000 hits for "tax humor." If those were all jokes, that'd be about one joke for every 25 individual tax returns filed for tax year 2005. We all know, though, that truth is more fun than fiction. Who can dream up the real life situations that really occur?

MarketWatch talked to enrolled agents at the California Society of Enrolled Agents in San Fernando Valley plus some certified public accountants based around the country to get their tax stories from this season and years past.

But it's my money!

A taxpayer sold a large piece of real estate in the last quarter of 2006, with a profit of several million dollars. His tax professional sits him down and explains very carefully. He tells Mr. Landowner that his taxes will be about $1 million.

The tax pro gives him two options. You may pay the taxes with your January estimated tax voucher; or you may take advantage of a loophole and pay it in April, when you file your tax return, without any extra penalties or interest. Naturally, Mr. Landowner opts for April.

Come April, the tax pro hands Mr. Landowner his tax return with a voucher to pay the million dollars.

Mr. Landowner is aghast. "I was expecting a refund! How can I owe so much money?" Reminding him of their conversation in October, the tax pro points out that Mr. Landowner was informed of this balance due and he reminds him of his decision to pay it in April.

Mr. Landowner whines, "But I don't have this kind of money. What do people do when they owe this kind of money?"

The tax pro asks, "Well, where are all the millions you received from the sale?"

Mr. Landowner sputters, "That's my money. I put in into my savings account. I don't want to give it to the government!" Did we mention he works for the government?

The tax pro put this return on extension until the client could get the money out of his accounts to pay the balance due.

What happened to my child?

The couple faxed their tax data and W-2s to their tax pro on April 14 expecting to file electronically on the 15th. Well, the return wasn't that complicated, so the tax pro went ahead and finished it, e-mailing them a PDF copy of the tax return. They faxed back their signed signature forms for e-filing. The tax pro filed the return electronically. Two hours after IRS's confirmation of receipt, the client calls up. "But what about my son? He's not on the return!"

It turns out, they'd had a baby in October and neglected to share that fact with their tax pro. This was the same guy who'd forgotten to tell his tax professionals that he'd gotten married two years earlier.

Oh, yes, the next day, the husband's father called to complain that the sale of his son's business wasn't reported on the tax return.

Talk about amended returns - this one was a doozy!

Puppy love

The client brought in his organizer listing all his expenses. One expense stood out: $1,500 for dog food. The tax pro grinned at his client. "You're kidding right? You know you can't deduct your pet's food."

It turns out, he could.

He'd forgotten to mention the $15,000 he'd received for selling the puppies he'd been breeding. The pet food and related costs didn't come close to offsetting the income he suddenly had to include.

See how easy it is to catch unreported income? Just a little slip or bit of humor — and Pow! Here comes an extra $5,000 in taxes you weren't planning to pay.

Instant gratification

At the height of tax season, the accountant scheduled an appointment with his 90-year-old client to come in and sign his completed tax return. His long-time client shuffles in, carrying a box overflowing with receipts, and says, "Here are some contributions to add to my tax return. I'll just wait while you add them in."

He wasn't throttled. But the return was filed as-is, amendment to follow.

The naked truth

One accountant had a client who was a nude dancer (he called her a "Performer"). Every year she turned up with a W-2 for roughly $5,000. Every year, he would fix her with a steely glance and ask, "Is this all of it?" Every year, demurely, she would say, "Yes."

One year she came with her W-2 and some 1099-Bs from a financial adviser's office. "What's this?" he asked. "Well," she said, "some bill collectors were after me, and I was afraid they'd find these holdings and seize them, so I sold them."

He sighed. "You never told me about this account."

"But I just started it last year," she dodged.

"O.K., how much did you pay for these securities you sold?" he asked.

"Huh," she expressively rejoined.

"He has to know what you paid to determine your profit or loss," he said.

"Huh," she continued.

The accountant then tells her to just bring all the papers she has for this account, which she does. The first sheet is headed "suitability index" where she has indicated her annual income is between $25,000 and $50,000 a year.

He gasps. He admonishes her, telling her she has to declare all her income on her tax return, including tips. She draws herself up, looks him straight in the eye, and snarls, "I get naked for that money!"

Needless to say, more amended returns followed.

Unclear on the concept

A new partner in a national accounting firm was indignant at a recent partners' meeting. He'd just gotten a K-1 for his share of the firm's partnership income from July through December. "But, I've already filed my tax return! I wasn't expecting this."

The managing partner, stunned, stared at him in silence and then asked, "What did you report? Just your W-2 for the first half of the year? Did you think you were getting all those checks for the last six months, tax-free?"

Not only do partnerships report partnership income via K-1's, national CPA firms report income from a whole array of states. Every CPA knows this - don't they?

As it turns out, new partners are provided with several days of new partner workshops and an entire half-day is spent on explaining partnership income and its effect on personal tax returns. Did he sleep through that session?

Another amended return on the way...

How do you feel now?

When you look at other people's tax adventures, yours don't look nearly so bad, do they? For more fun, try searching the Internet for "tax humor" or "tax jokes." Whatever you do, don't let taxes get you down!

Eva Rosenberg is the founder of TaxMama.com and an enrolled agent licensed to represent taxpayers before the IRS. She is the author of the book, "Small Business Taxes Made Easy."